Momentum returns

KevinMarder

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

More glamours emerged from the powder room Wednesday, walking briskly back to the party after taking a few weeks off to gather their composure.

At the surface, the averages idled ahead of Friday's jobs number. This is the type of digestive behavior that is healthy as the mending process continues technically.

Breadth improves. As the below chart shows, 208 issues printed 52-week highs on Tuesday vs. 198 last Friday and 197 in mid-March when the S&P
SPX, -0.58%
was seated at about the same level.

Breadth is a measure of what the average stock is doing, and it is the average stock that historically tends to peak some months ahead of a bull market top.

Meanwhile, the backdrop decays. The ADP jobs figure is at its lowest level in nine months. German PMI is less than 50. Unemployment in Italy is at a 12-year high, and a 15-year high for the euro zone. French and Spanish banks have been under pressure. Initial jobless claims have risen in recent weeks, though this is tied to the Easter holiday effect. A positive is the ISM survey, which came in firmer for the fifth month in the last sixth, extending a recent trend.

Does any of this mean anything?

Not if you are a speculator or short-term trader. All that matters to a speculator is what matters to the market. And at this juncture, late Wednesday, shares do not appear overly bothered by Europe, China, the economy, or much of anything else.

Retail
XRT, -0.55%
and consumer discretionary sectors
XLY, -0.46%
continue to act well, with the latter showing sharp outperformance over the past six sessions, lagging only once in this span. Homebuilding issues hit a post-Lehman high Wednesday, according to the iShares Dow Jones US Select Home Construction index
ITB, -1.63%

Most glamours act well. It is a matter of sitting on those that never flinched during this weakness in the averages, such as Dollar Tree
DLTR, -1.04%
or Tractor Supply, or monitoring those that appear ready to complete their basing patterns.

Among the names, Michael Kors Holdings
KORS, -0.15%
more than doubled in its first nine weeks as a public company. Most analysts eye 41% earnings growth in the March '13 year vs. the 79% expected in the March '12 year. The luxury apparel interest has seen its shares rebound from just under 40 to just south of 50 over its last eight outings. Earnings come out in June, so there is time enough for a potential move to develop. Liquidity is high at about $131 million in average daily dollar volume, far above the minimum $25 million to $30 million preferred here.

Technically, price is in the eighth week of a constructive base. An aggressive speculator can use the Mar. 9 high of 50.69 as a potential pivot for entry. Volume on the breakout day should be solid, and not just on-the-fence, and a reasonable stop-loss should be used to help mitigate the risk of price moving in the wrong direction.

Bonanza Creek Energy
BCEI, +5.39%
is another recent new issue, but much less liquid than KORS. The oil & gas explorer is working on a five-week cup-shaped base ahead of its earnings announcement a little later this month. The number of mutual funds that own the stock rose from 31 at Dec. 31 to 51 in the March quarter. Most analysts expect earnings growth of 442% in '12 and 76% in '13. Average daily dollar volume is less than $6 million, making this quite susceptible to volatility.

Technically, price made its first attempt at breakout out on Tuesday, but was turned back. This is not viewed as a big negative, as many stocks need a second or sometimes a third attempt to clear. Insisting on volume being robust on the day of breakout increases the probability of a breakout succeeding in its follow-through. Tuesday, volume was 28% above average, lighter than desired on a breakout day.

A potential pivot point for an aggressive speculator would be the Tuesday high of 22.66. Of note is the earnings report coming up in a matter of days.

Elsewhere, Zillow
Z, -2.44%
up 10% in the last four sessions, is still worth keeping an eye on in case it comes out above the Apr. 12 high of 39.48 on volume. Lululemon Athletica
LULU, -2.49%
came out of a five-week pattern on volume 91% above average Wednesday. At Wednesday's closing price of 79.43, the stock is 3% past the top of its base at 77.13. Therefore, it can be taken here by a speculator who uses a stop-loss of 5%-7%. The operator of athletic apparel stores has not released earnings yet. Breakouts by glamours like LULU, Sourcefire
FIRE, +0.52%
and TripAdvisor
TRIP, -0.37%
are evidence the speculative sentiment has returned to the market, a good sign for market health.

Laredo Petroleum Holdings
LPI, +3.88%
a sort of companion issue to Bonanza Creek, builds a base. Like Bonanza, this is young and thin. Under Armour
UA, -0.88%
has yet to break out, but is making noises. The Apr. 20 high of 102.86 is a potential pivot. Rackspace Hosting
RAX, +0.00%
works on a five-week base with a bumpy look to it ahead of earnings expected shortly. With big estimates that were most recently lifted, this may be interesting.

Alexion Pharmaceuticals
ALXN, -1.99%
works on a constructive, tight base, finds support at its 50-day, and has its earnings report out of the way. Earnings estimates were recently lifted by the Street, and the 95.01 high of Mar. 26 could serve as a potential pivot for a speculator. Francesca's Holdings
FRAN, -2.75%
is one of the wilder glamours as it fills out the right side of its base. Young and thin. Invensense
INVN, -2.77%
comes back from a four-week respite.

In summation, better action among the speculative growth glamours and an expanding new-high list are objective evidence that the tide comes in. Some, but not many, pattern setups are seen in the cycle's leading titles. An intermediate-term speculator should not chase this market, but should instead allow those names with stellar growth prospects to come to him or her. This means waiting for bases to be completed on confirming volume, and then taking action accordingly.

At the time of this writing, of the stocks mentioned in this report, Kevin Marder or an affiliate thereof held no positions, though positions are subject to change at any time and without notice. The information contained herein may have been previously disseminated.

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